The FCA has fined five of the world's biggest banks. Photo: Flickr/Images Money
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Use today's record banking fine to put payday lenders out of business

Jumping the shark.

Today’s record £1.1bn fine imposed by the Financial Conduct Authority on five of the world’s biggest banks should not just disappear into the FCA’s coffers. George Osborne was quick out of the blocks this morning at 6am with a statement welcoming the record FCA fines on our banks over the foreign exchange rigging scandal. Unscrupulous bankers had tried to rig ‘the fix’, as it’s known, to pocket extra cash. Not good for London’s reputation, not least given Libor has already been tarnished.

Of the £1.5bn in fines, Osborne said: “I will ensure that these fines are used for the wider public good”. Given that some of those will be paid by the taxpayer owned RBS, there’s an element of us fining ourselves and then redistributing the cash elsewhere. The fine, imposed for the systematic rigging of the £3.5tn a day foreign exchange markets, should instead go to tackling another problem the FCA is grappling with: the high cost short-term credit market.  For earlier this week, the FCA also announced the new payday lending cap, with loan rates to be capped at 0.8 per cent per day of the amount borrowed. However, not only are there legitimate concerns that the rate remains too high, the move does nothing to spur the growth of alternative affordable providers people desperately need.  Given worries that the cap could lead to a significant shrinkage in the payday loan market with people resorting to illegal lenders, building an alternative network of providers is even more urgent.

We therefore believe that today’s £1.1bn should be used to capitalise and expand a network of such providers. Earlier this year, IPPR’s report, Jumping the shark set out a strategy for doing exactly that. We argued that regulation can reduce the damage done by providers of high cost consumer credit, but it is more effective at preventing harm than promoting good.  Alongside a tougher regulatory system, the UK also needs new forms of local, democratic finance that serve the needs of low- and middle-income households in the short term credit market, that otherwise risk being excluded.

To develop this network, we are calling for a new national institution – an Affordable Credit Trust - to be established with the remit of mobilising and capitalising a diverse range of local not-for -profit lenders. Affordable credit providers could draw down capital from the Trust and access technological infrastructure necessary to keep costs low, in exchange for offering affordable loans and operating in a democratic fashion, with borrowers becoming members of the institution. They could range from credit unions, housing associations to social enterprise providers and more, with the Trust encouraging innovation in how to service affordable, easy to use loans.  Moreover, providers should partner with institutions like local Post Offices or churches to ensure they operate at the heart of their community. 

To keep the system sustainable, lenders would be able to use as a last resort a repayment backstop mechanism similar to that employed with the DWP’s Budgeting Loan system, which consistently achieved over a 90 per cent repayment rate without placing the debtor in undue difficult.  We estimate that this in place, and with the right support, loans could be offered for as little as £3 for every £100 borrowed per month, compared to nearly £30 for the average payday loan.  In a time when household incomes continue to be squeezed, that difference can make all the difference.

However, we also know from past experience that the affordable credit market won’t grow on good wishes alone; it needs financial and technical support to get off the ground and compete with the payday lenders.  This is how it has grown in places like America, where one in three are members of a credit union.  If today’s fine by the FCA was used to capitalise an Affordable Credit Trust it could have the means to really turn the tide against high cost lenders, potentially offering up to 5 million affordable, manageable loans a year once the Trust and local provider networks are fully established, based on our previous research.

An Affordable Credit Trust capitalising affordable, democratic forms of finance captures the spirit of the times: it is about shifting capital and power away from the consumer credit industry and towards people and communities, giving them the means to build affordable alternatives to high cost credit.  It means shifting away from a reliance on cash transfers from the central state and towards rooting democratic forms of capital that allow people to be more assertive in standing up to markets where they dominate.  So on a day when the banks have been shown – yet again – to have little regard for the rules the rest of us have to live by, their fine should be used to help ensure those that need access to affordable credit are no longer alone. The £1.1bn fine should be used to help us jump the shark.

Mathew Lawrence is Research Fellow at IPPR. He tweets @DantonsHead

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Is the Great Fire of London a blueprint for how governments deal with disasters?

Visible leadership, an established authority, and a common external enemy: an enduring defence mechanism 350 years on.

In 1968, the science journal The Lancet ran a report into human behaviour. When populations are confronted with disaster, it recommended, effective “communications, coordination, and control, and the establishment of a recognised authority” are of utmost importance (advice that should have been heeded immediately after the Brexit result in June this year).

The 350th anniversary of the Great Fire of London this week seems is a good time to think about how we deal with disasters: over 13,000 homes were destroyed, 87 churches ruined and thousands of Londoners displaced.

For me, one of the most striking parts of the story of the Great Fire is not the fire itself nor the dramatic rebuilding programme that followed, but the state of flux in between.

When the fire broke out, England was at war with both the Dutch Republic and France. As soon as news reached France, the Venetian ambassador Alvise Sagredo, declared that the fire would be “worse than the plague and any other disaster, capable of making [the English] change their government and their principles”.

In England, even the London Gazette warned that England’s foes would try “to persuade the world abroad of great parties and disaffection at home against his majesties government”. Faced with unparalleled destruction and unprecedented disarray, how did the king, his advisers and civic authorities regain control of London?

With the Guildhall severely damaged and the Royal Exchange destroyed, the first step was to find a new base for civic and mercantile power. On 6 September, Charles II instructed the Lord Mayor and the city aldermen to resume governance of the city. Gresham College and buildings around Bishopsgate were taken over and efforts were immediately taken to re-establish trade. Vendors were granted permission to set up sheds in temporary markets at Bishopsgate Street, Tower Hill, Smithfield and Leadenhall Street.

“Honest and able persons” were selected to monitor the ruined city to ensure fire did not break out afresh, appeals were made across the country for charitable donations and neighbouring counties were called upon to provide sustenance. From the navy stores, ship’s biscuit was offered to the needy and canvas was provided so that the tens of thousands of homeless people stranded in the fields surrounding London could fashion tents.

The measures were not perfect. Visiting Moorfields, the diarist John Evelyn described, “the poor inhabitants . . . some under tents, some under miserable huts and hovels, many without a rag”.

Those stranded found food to be in short supply and many succumbed to the illnesses bred by a reduced condition in life, including aged playwright James Shirley, who died in October 1666.

But it wasn’t long before people started to disperse – either leaving London altogether, finding accommodation elsewhere, or returning to the locations of their former homes and shops to erect makeshift shacks above the ruins.

In the background, the trial and execution of French watchmaker Robert Hubert, who falsely claimed to have started the fire, provided a focus for any anger and rage.

With communication ruptured following the destruction of the London Gazette printing house and the General Letter Office, rumours of plots, arson and invasions had spread almost as quickly as the fire itself. Indeed, terrible violence had broken out during the fire, with mobs targeting any “strangers” or foreign-born Londoners. One French servant, for example, reported how gangs of “English women did knock down strangers for not speaking good English. Some of them armed with spits, some with bread staffs, and the captain with a broad sword.”

When the London Gazette was released the week after the fire – after only skipping one edition of its biweekly run – it provided readers with a detailed description of the catastrophe, emphasising its accidental nature and promoting the role played by Charles II and his brother and heir, James, Duke of York, in preventing the fire spreading even further.

Against protocol, the newspaper also allowed important tradespeople to advertise their new offices: the goldsmith-bankers, for example, informed readers that they had found premises along Broad Street.

By mid-September, the etcher Wenceslaus Hollar had already begun his survey of the city and plans had been submitted to the king from John Evelyn and architects Christopher Wren and Robert Hooke, to name just a few, as to how to rebuild the capital.

Writing at the time, Sir Nathaniel Hobart, believed that the “rebuilding of the Citty will not be soe difficult as the satisfying all interests, there being many proprietors”. As such, one of the most important innovations following the disaster was the establishment of a judiciary, known as the Fire Court, to untangle the complex web of formal and informal agreements between tenants and landlords. From 1667 until 1672 the Fire Court settled hundreds and hundreds of cases.

There were certainly many bumps along the way – for a while, the City of London was plundered and inhabited by gangs. Plus, anger towards foreign-born Londoners continued; owing to his Dutch background, one Johan Vandermarsh had to fight tooth and nail to keep hold of his property on Lime Street, despite helping to save many of his neighbours’ homes.

All of this considered, there was nothing like the widespread disorder that Charles II had feared and his enemies expected. On the contrary, the visibility of the king and his brother and heir – and the convenient suspicion that the fire had been started by an external enemy – worked to bind the people to their king and settle unrest. Although hard to believe at the time, there was also the promise of “a more beautiful city”.

Rebecca Rideal is a historian, factual television producer and author of 1666: Plague, War and Hellfire.

She will be speaking at London’s Burning festival on Friday 2 September – a contemporary festival of art and ideas produced at Artichoke to commemorate the 350th anniversary of the Great Fire of London. Free to the public, it runs from 30 August-4 September.